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China's government this week made a decisive step towards developing more of the country's oil and gas reserves, including unconventional ones. A new umbrella company grouping all the state majors will drill for ultradeep oil and gas, and explore shale formations.
Given China's standing as a top wind and solar producer—and investor—the move might come as a surprise for some. Yet it is, in fact, a most logical step towards boosting energy security, following Beijing's all-of-the-above attitude to energy.
The new group, besides oil giants CNPC and Sinopec, also includes companies from other industries, such as China Aerospace Science and Industry Corp and steelmaker Baowu, as well as equipment manufacturer Sinomach and Dongfang Electric Group, a maker of power generators, Reuters reported.
The purpose, given the makeup of the new entity, is to cover as much of the oilfield supply chain locally as possible, likely to facilitate exploration and, ultimately, production. Indeed, according to CNPC, which announced the news, "This...is to gather wisdom and strength to jointly build an industry chain from ultra-deep oil and gas exploration to development to engineering."
The new entity comes on the stage after a record year for Chinese oil and gas production. Last year. In crude oil, the country produced around 4.2 million barrels daily, for a total of 208 million tons, which was 3 million tons more than the previous year. In natural gas, total output last year reached 230 billion cu m, of which 96 billion cu m came from unconventional resources, including shale, coalbed methane, and natural gas hydrates.
Unconventional resources have long been a focus of attention for China's state oil and gas majors, but developing them has been a challenge. PetroChina's story of developing the Cambrian shale in the Sichuan province illustrates these challenges. Exploration began back in 2009, meaning it took the company close to 15 years to begin commercial production, whereas, in the U.S. shale patch, wells take months to drill and begin production.
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The reason it took so long was the old stratigraphic age of the formation, meaning the layers of rock were old and harder to drill through, and the fact that the reservoir was at a deeper level than reservoirs are elsewhere. Yet China appears bent on developing as much of its local oil and gas reserves as possible in a strategy that could have been useful to some European countries had they not nurtured influential climate activist lobbies.
China's energy philosophy appears to be as simple as it is effective. No source of energy is denied a place in the energy mix, and local resource development is a priority. Incidentally, speaking of various energy sources, a recent report revealed that China would no longer publish data on wind and solar power capacity utilization amid falling rates of utilization.
The decline came on the back of higher curtailment rates approved by the government. What this means is that wind and solar generators are now allowed to dump more excess supply instead of overloading the grid. And it seems there is quite a lot of excess supply—the curtailment ceiling was doubled from 5% to 10%.
In other words, China is learning as it goes what works, to what extent it works, and where its limits are. So, as it plans to build more ultrahigh transmission lines to curb the need for wind and solar curtailment, China is also working on developing its hydrocarbon resources of which it has substantial amounts. For Beijing, the top priority appears to be neither decarbonization nor any sort of energy dominance but plain and simple energy security.
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By Irina Slav for Oilprice.com
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